MBS Highway Daily Updates 05/12/2023

Current position: Continue Floating

Stocks are higher and mortgage bonds are slightly lower to start the day.

Winning Hand

We had a discussion with our good friend and head of the best-performing bond fund of all time, Lacy Hunt, and he told us that he agrees with our forecasts for inflation and mortgage rates and that we are sitting on a winning hand.

A few other points that Lacy brought up that will help inflation move lower next month:

• Used car prices are moving lower in the first part of May, which was the sector that rose 4.4% in the latest CPI report.

• Hotels and restaurants declining at the same time have historically been a tipping point for both the economy and where rates are going.

• Social Security COLA (Cost of Living Adjustment) is anticipated to drop. Their economists believe inflation will drop to 3.3% in September.

Next Week

Tuesday: Retail Sales, NAHB Housing Market Index

Wednesday: Mortgage Apps, Housing Starts & Permits, 20-year Bond Auction

Thursday: Initial Jobless Claims, Existing Home Sales

Technical Analysis

Mortgage bonds are continuing to trade above the 200-day moving average, which is an important level to remain above. If bonds can continue their momentum to the upside, there is a lot of room for improvement until reaching the next big ceiling at 101.84.

The 10-year is trading in a range between support at 3.35% and overhead resistance at 3.43%. Yields need to remain below 3.43%, and if they can get under 3.35%, the next stop is 3.30%, followed by 3.22%. As we mentioned this week, we think we are set up for a lower rate this summer, but it won't be in a straight line. Continue Floating.